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Toyota quality woes may keep US discounts in place

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Toyota Motor Corp may maintain elevated US discounts for months to draw buyers as the world’s biggest carmaker battles to recover its reputation for quality, according to industry analysts who track pricing and incentives.


The company began offering no-interest loans and discount leases on most Toyota-brand models in early March, extending them this month. The incentives were worth $2,568 per vehicle last month, up $1,003 from a year earlier, according to Santa Monica, California-based Edmunds.com. Toyota hasn’t said if the programme will continue through May.

The discounts fueled a 41 per cent US sales gain for Toyota last month, after recalls of more than 8 million autos globally triggered declines earlier in the year.

US regulators said April 5 that Toyota “knowingly hid a dangerous defect” related to sticky gas pedals, and Consumer Reports on April 13 called the Lexus GX 460 sport-utility vehicle a “safety risk” because of its handling.

Toyota fell 0.5 per cent to 3,690 yen as of 12:43 pm in Tokyo trading. The shares have lost 4.9 per cent this year.

Earlier this month, Toyota looked to be putting “bad news from January and February behind it,” said James Bell, executive market analyst for Kelley Blue Book, a vehicle pricing and data company in Irvine, California. “My sense is this Lexus mess is going to keep the incentives around for at least another month, if not longer, and you might also see them on Lexus.”

Toyota can pare production quickly, so it isn’t likely to experience the long-term incentive problems of Ford Motor Co and the former General Motors Corp earlier in the decade, he said.

“Toyota is better tuned to the market, and doesn’t have the same labor issues that kept GM and Ford locked into incentives to maintain volume,” Bell said.

Incentives are “the quickest way for us to restore customer confidence and trust,” Takahiko Ijichi, senior managing director for the Toyota City, Japan-based company, told investors in an April 7 conference call.

There’s no decision yet on whether current offers will be extended beyond May 3, said Celeste Migliore, a spokeswoman for Toyota’s US unit. While the focus on low-cost financing rather than cash rebates will continue, Toyota may shift to setting incentives by region in the US instead of one national program, she said.

Extended use of discounts would erode the residual value of Toyota vehicles and hurt used-car sales, so the company will try to “climb down” from current levels as quickly as possible, said Jessica Caldwell, director of industry analysis at Edmunds.com.

“They could carry this out until things look better from a PR perspective,” she said. Toyota may retain incentives at about the current level at least through May, Caldwell said.

Toyota’s US sales unit is based in Torrance, California.